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Indian Railways Profits are Falling

The Indian Railways is a living example of the failure of the Indian state to manage and operate anything efficiently.  As one of the few major countries in the world that still does not have a national limited access highway system, Indians are completely dependent on the Indian Railways to travel.  Air travel which is growing very fast cannot and will not be able to substitute rail travel any time soon.

This dependency on the railways is likely to remain at least for a few decades (it took the United States 35 years to build its freeway systems.  It cost about $425 billion and is considered to be the biggest infrastructure project ever.  Construction is still continuing in some parts and the Americans have so far built over 75,000 Kilometers of highway).  The American freeway system is the Taj Mahal of the modern era!!

The Indian Railways budget details were released by India’s Railways Minister Mamata Banerjee this week (India is one of the few countries that has a Railway Budget that is separate from the national budget.  This is due to the large and complex nature of the Indian railways and the importance of Indian Railways to India.  The railway budget will be presented to the parliament two days prior to the national budget (February 26th).  All these are traditions carried over from the British Raj).

Many observers were surprised to learn that the profits made by the Indian railways are projected to fall by 93% in 2009-2010 as compared to 2007-2008.  Indian railways are a monopoly.  The gross traffic has consistently gone up every year since 1951.  Indian railways are also one of the biggest beneficiaries of the booming Indian economy (more people are traveling, more goods and services to transport and a rapidly increasing domestic and international tourism business).  So why are the profits falling so dramatically?

The railway budget gives some clues to some of the key reasons.  The budget for the fiscal year 2011 has no increase in passenger fares and also for freight traffic.  The minister also announced reduction in service charges for e-tickets.  Freight charges for food-grains and kerosene will be reduced to help the common man.  We have record inflation in 2009 and the cost of diesel has gone up so why are the ticket prices not going up?

Common man in India uses coal and wood as fuel for cooking.  Kerosene is used by middle class and upper middle class Indians.  So why give them a break at the cost of poor Indians?  In addition the railway minister also announced the following schemes: “100% concession extended to cancer patients going for treatment together with an escort in AC 3 class, 75% concessions in second sleeper for technicians of regional film industry when traveling for film production related works and 50% concession in First Class, AC Chair Car, AC 3-tier, AC 2-tier in all trains including Rajdhani/Shatabdi and Jan Shatabdis”.   Is the Indian railway a for-profit institution or some kind of socialistic experiment?

Wait there is more.  The railway minister also announced that “concession under Izzat scheme, for Press correspondents and students of Madrasas would continue”.  Is there any group or section of society that is not benefiting from the Indian railways one way or the other?  How about offering a discount to any Indian who has filed a tax return? There is no question that subsidies and protectionism are killing the Indian railways.  The Indian government has obviously not learnt anything from the current crisis facing Air India and Indian Airlines.

The other issue facing the railways is the complexity.  The Indian railway is really not a single organization but multiple organizations that are grouped together.  The official website of the Indian railways points to at least 40 other official websites!!  All of them act as different entities with their own overheads.  There is an urgent need to simplify the structure and make it more cost efficient or spin them off or partially privatize them.

The government wants private investment but is not fully committed.  Mamata Banerjee said “a special structure would be created for the new business model to encourage private investment along with social commitment.  Our objective is inclusive growth, adding that her main consideration in this year’s Budget was social responsibility rather than mere commercial viability of projects”.  Why would any private entity invest their money when the leader of the organization is indicating that she is more interested in social responsibility rather than commercial viability?

The only social responsibility that the minister has is towards India.  The prosperity that we see today is due to the hard work of the Indian public and not because of anything that the Indian government did or is doing.  The government should not waste this opportunity by spending the hard earned money on what it thinks is its social responsibility but what we all know is vote bank politics.

Related posts:

  1. Are Tendulkar & Ganguly Givers or Takers?
  2. Mamata Banerjee is Unfit to be Cabinet Minister
  3. Indian Tradition of not Accepting Resignations
  4. Return of the Non Resident Indian
  5. Indian Government Wiretapping Opposition Leaders?

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